MICHAEL PASCOE. For-profit funds take a hit off back of royal commission (11.09.18)

Sep 13, 2018

Never mind the fines and compensation building up, what about retail fund managers losing more than $20 billion of assets in the June quarter?

That figure is not for retail superannuation funds but public offer unit trusts – how many people have traditionally invested outside of superannuation.

It is a field dominated by many of the names that have “starred” in the financial services royal commission.

As the RC hit its stride, battering the reputation of Australia’s for-profit financial services industry, ABS figures show retail unit trusts’ funds under management dropped from $394.8 billion at the end of the March quarter to $377.3 billion at the end of June – a loss of $17.5 billion.

The June quarter was a particularly good one for stock markets, so the rise in share values would have masked the real difference between funds withdrawn and deposited.

Even a 1 per cent growth in equity prices in the quarter would indicate more than $21 billion was withdrawn – $7 billion a month.

And at fees of, say, 1 per cent, that would mean an annual revenue loss of $210 million from that single quarter.

If that rate of loss was maintained for a full year, well, no wonder banks are increasingly quitting funds management.

In the meantime, the loss of fee revenue could be another factor in some of the banks increasing mortgage rates by more than the rise in their cost of funds.

Yet to be fully felt is the impact on retail superannuation funds, but there was a hint in APRA statistics showing industry funds overtook retail funds for the first time in the June quarter.

Industry superannuation fund assets grew by 5.5 per cent in the June quarter from $598.8 billion to $631.6 billion.

Retail superannuation fund assets grew by 3.3 per cent from $602.6 billion to $622.3 billion (the assets growth figures represent both investment performance and contribution/payment flows).

Tax office-regulated self-managed super funds’ (SMSF) assets grew by 3.9 per cent in the quarter to $749.9 billion.

The differing performance of the three pillars of our superannuation industry was particularly stark over the full financial year.

Retail funds’ assets grew by 5.9 per cent. SMSF assets were up 6.4 per cent. Industry funds jumped by 16.3 per cent.

With the average industry fund consistently outperforming the average retail fund and industry funds dominating the “best-of-breed” lists, plus the royal commission disclosures, there’s no surprise about where money is flowing.

And no surprise about motives in the obvious quarters for attacking industry funds.

Aside from political conspiracy theories, there’s the simple financial reality of industry funds taking more of the highly-paid retail sector’s business.

Australia’s total managed funds industry is worth $3.5 trillion, of which close to $2.8 trillion is in superannuation. That massive pool of investment is too important for both the nation and individuals for it to be fiddled with for base motives.

It makes sense to reinforce success, analyse outperformance and underperformance, remove outrageous inefficiencies and rorts, and leave doctrinaire preconceptions out of it. Full disclosure helps people do that.

Despite the royal commission-forced sunlight, weird ideological stances continue to be pushed, with no more obvious example than the Australian Financial Review’s weekend editorial, a particularly strange thing expressing horror at the idea of unionists becoming more successful at capitalism.

In my opinion, it sounded like something dashed off after a long Friday lunch involving a few too many sherbets with the anti-worker gang in Pierpont’s legendary Croesus Club.

The June quarter ABS and APRA statistics indicate fewer investors are taking any notice of AFR editorials.

The New Daily is owned by Industry Super Holdings.

This article first appeared in the New Daily on 11 September 2018.

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